What Is an Annuity Rider?
Annuity riders are essentially additional features that can be added into your annuity contract to help customize the product to meet your financial circumstances and specifications.
In addition to a variety of annuity types, you can choose from a long list of riders. Riders come in many shapes and sizes and can achieve various goals.
One type of rider, for example, could give you the option of leaving all or part of your annuity contract to a selected beneficiary.
Other riders can help protect your annuity payout against inflation by creating set increases in your payments to combat rising costs as you age. Some riders can even provide extra income if you require long-term health care.
Riders are your chance to think about any risks or concerns you may have about the future of your finances and ensure that those concerns are addressed directly in your annuity’s contract.
| Rider | What It Guarantees | How It Works | Typical Cost | Available On | Best For |
| GLWB | Lifetime income withdrawals at a set percentage, even if account value reaches $0 | Withdraw 4–6% of benefit base annually for life; no annuitization required | 0.75–1.50%/yr | Indexed annuities, variable annuities | Retirees who want income flexibility without locking in annuitization |
| GMIB | Minimum future income level regardless of market performance | Must annuitize (convert to income stream) to trigger; benefit base grows at guaranteed rate | 0.50–1.50%/yr | Variable annuities (some older FIAs) | Investors in variable annuities who want a guaranteed income floor |
| GMWB | Full return of original premium through annual withdrawals | Withdraw a set % annually until entire premium is recouped; stops after principal is returned | 0.50–1.00%/yr | Variable annuities | Investors who want principal protection with withdrawal access |
| GMAB | Minimum account value after a set waiting period (usually 10 years) | If account value drops below guarantee after waiting period, insurer tops it up to guaranteed minimum | 0.25–0.75%/yr | Variable annuities only | Long-term investors in variable annuities who want a principal safety net |
| COLA | Payments increase annually to offset inflation | Payments rise by a fixed % (e.g., 3%) or tied to CPI; initial payment is lower than non-COLA annuity | Reduces initial payout by 10–25% | Immediate annuities, some deferred | Retirees concerned about inflation eroding purchasing power over a 20–30 year retirement |
| LTC Rider | Increased payments if long-term care is needed | Typically doubles or triples monthly payout (for a set period) if you can’t perform 2+ ADLs | 0.15–0.75%/yr | Fixed, indexed, some variable | Anyone who wants LTC protection without buying a separate LTC insurance policy |
How Much Do Annuity Riders Cost?
When you add a rider to your contract, the amount of income you receive from your annuity will likely be reduced by a fraction of a percent. The more riders you choose to add, the higher your costs and the lower your payouts will be.
Some riders can be notably expensive, adding as much as 1% or more to the annual cost of the annuity. But the actual percentage will depend on several variables, including the provisions of the rider and the company that provides it. It’s important to have a clear understanding of the ongoing costs of any riders or contract features that you are considering adding to your annuity.
Average Cost of Common Riders
| Carrier | Rider Name | Type | Annual Fee | Notes |
| Nationwide | Lifetime Income Rider (L.inc®) | GLWB | Up to 1.50% | 0.40% with Joint Option |
| Nationwide | High Point Select Enhanced Death Benefit | Death Benefit | 0.50% – 0.55% | Assessed on contract value quarterly |
| New York Life | Enhanced Beneficiary Benefit Rider | Death Benefit | 0.30 –1.00% | Fee can escalate up to 1% based on contract terms |
Guaranteed Minimum Living Benefits
While many types and styles of riders are available to consumers, they generally fall into two broad categories. The first are guaranteed minimum living benefits, which cover income that is received by the original annuity purchaser.
These are typically provided with variable annuity and fixed index annuity contracts. Since these types of annuities’ payouts vary based on the performance of a portfolio or index, living benefit riders set a certain minimum amount that the purchaser is guaranteed to receive.
Common Types of Living Benefits
- Guaranteed Lifetime Withdrawal Benefit
- A guaranteed lifetime withdrawal benefit allows the annuity owner to withdraw a certain percentage of the principal each year for the rest of their life, regardless of the annuity’s performance.
- Guaranteed Minimum Withdrawal Benefit
- A guaranteed minimum withdrawal benefit allows the annuity owner to get a full return of their principal via annual withdrawals
- Guaranteed Minimum Accumulation Benefit
- Guaranteed minimum accumulation benefits promise that the annuity purchaser will receive payouts worth at least the dollar amount of the purchase or some percentage of the dollar amount after a specified number of years.
- Guaranteed Minimum Income Benefit
- A guaranteed minimum income benefit provides lifetime income payments for the annuitant no matter how the annuity’s investments perform.
Guaranteed Minimum Death Benefits
Aside from living benefits, the other broad area that many riders fall into is death benefits. While living benefits are often added to fixed index and variable annuities, death benefits are typically used for deferred annuities.
These benefits come into play if the annuity owner dies during the accumulation phase. If this happens, a guaranteed minimum death benefit rider may allow for a new annuitant to be named.
As with living benefits, there are several types of guaranteed minimum death benefits.
According to the Insured Retirement Institute, a contract anniversary value or ratchet death benefit increases based on criteria described in the annuity contract.
The enhanced death benefits equal the greatest dollar amount of one of the following:
- Contract value at death
- The premium payments minus prior withdrawals
- The contract value on a specified previous date (could be a prior contract anniversary date)
There is also an initial purchase payment with interest or rising floor option, where the value of the benefit can be either the contract value at death or the premium payments with previous withdrawals subtracted, whichever is greater.
Another option is an enhanced earnings benefit, which offsets federal income taxes on earnings payable at the time of death.
Get Guidance Before You Decide
Key Concept: Benefit Base vs. Account Value
When you add an income rider to a deferred annuity, your contract creates two separate values:
Account value: Your actual money. This is what you’d receive if you surrendered the contract or what gets passed to beneficiaries. It fluctuates with investment performance (for variable annuities) or credited interest (for indexed annuities).
Benefit base: A separate, calculated number used only to determine your guaranteed income. It typically grows at a guaranteed rate (e.g., 5–7% compounded) regardless of market performance. You cannot withdraw it as a lump sum.
Example: You invest $300,000 in a fixed indexed annuity with a GLWB rider. After 10 years, your account value might be $380,000 (based on actual index credits), but your benefit base could be $489,000 (based on the guaranteed 5% compound growth). Your lifetime income is calculated on the higher benefit base — at a 5% withdrawal rate, that’s $24,450/year guaranteed for life, even if your account value eventually reaches $0.
Are Annuity Riders Worth It?
This section outlines various scenarios when an annuity rider may be right for you.
When riders are likely worth the cost:
- You have no pension and need a guaranteed income floor. A GLWB rider at 1% per year on a $400,000 annuity costs $4,000 annually but guarantees $20,000 to $24,000 per year for life. If you live past your mid-80s, the rider pays for itself many times over.
- You’re in your 50s–60s and worried about future LTC costs. A long-term care rider at 0.25 to 0.50% per year can double or triple your monthly payout if you need care, far less expensive than standalone LTC insurance for someone over 60.
- You want to leave a guaranteed legacy. A death benefit rider at 0.30 to 0.50% per year ensures your beneficiaries receive at least your original premium, regardless of market performance.
When riders may not be worth it:
- You’re buying a fixed annuity (SPIA or MYGA). These products already guarantee your principal or income by design. Adding riders to a product that’s already guaranteed can be redundant.
- You have a long investment horizon (15+ years). The compounding cost of riders over 15 to 20 years can be substantial. A 1% rider fee on $300,000 compounds to over $50,000 in fees over 15 years, which may exceed the benefit.
- You have other income sources covering your floor. If Social Security and a pension already cover your essential expenses, a GLWB rider’s income guarantee may duplicate protection you already have.
Other Types of Riders
While most riders fall under the guaranteed minimum living or guaranteed minimum death benefit umbrellas, numerous other types may be offered by annuity providers.
Since riders exist to offer additional forms of financial security, most options generally relate to either your finances or your health.
- Disability Income Rider
- Ensures income if you develop a disability that results in a loss of income. The income from your annuity will be higher for a limited time, such as for a year.
- Impaired Risk Rider
- Increases the annuity payments to compensate for a projected shorter payout time (if you have a health condition). Requires proof that the purchaser is sick.
- Long-Term Care Rider
- Covers the cost of long-term care by increasing your payment should you require it. This typically means your monthly payout will be a multiple of your normal benefit.
Health-Related Riders
You may also want to include a crisis waiver in your contract. These waivers allow for early withdrawals with no surrender charges for certain qualifying life events. Like riders, they let buyers customize their contracts and optimize their benefits.
- Cost of Living
- Increases the amount of your payments to adjust for inflation. This adjustment can be based on either the rate of inflation or a specified percentage noted in the annuity contract.
- Return of Premium
- Returns the remaining principal — the original purchase price — to a specified beneficiary if the owner of the annuity dies before the entire principal has been distributed.
Financial-Related Riders
The sheer volume of riders available can be a lot for some customers to keep track of on their own.
“What was confusing is that there are just so many options,” annuity customer Syble Solomon told Annuity.org. “And having to think about your own mortality and level of needing security. All of those options made it really difficult.”
Working with an insurance agent or financial advisor can help you to clarify your choices.
A key customization feature, optional riders are available on most annuity contracts to add additional security or guarantees. The most common riders offer protection for future guaranteed income, withdrawals, or a death benefit amount. Adding additional riders will usually add some costs to the annuity contract. Consider the total cost of ownership, which can include product fees, rider fees, and any investment expense ratios.
Stephen Kates, CFP®Principal Financial Analyst for Annuity.orgStephen Kates, CFP® is a personal finance expert specializing in financial planning and education. He serves as the Principal Financial Analyst for Annuity.org, where he delves into industry trends to support consumers and financial advisors on wealth management, annuities, retirement planning, and investing.
Frequently Asked Questions
An annuity rider is an add-on to an annuity contract that customizes the annuity in a certain way. This can include accounting for inflation or setting a floor on payments.
Riders offer a way to provide additional certainty and security to customers. They modify the annuity contract with add-ons that can account for things such as soaring inflation and taking care of beneficiaries.
The cost of an annuity rider varies, but it can be significant. The more riders you add, the more the cost will grow.
